Airline ETF Seeks To Overcome Transportation Sector Woes

The transportation sector has been in a sharp decline over the last four months despite the attractive fundamentals of lower energy costs.

This weakness has been readily apparent in the iShares Transportation Average ETF (IYT), which tracks 20 large cap airline, trucking, and railroad companies.  This exchange-traded fund currently has $832 million in total assets and charges an expense ratio of 0.44 percent.

Since the beginning of the year, IYT has fallen over 10 percent amid fears over a global slowdown in economic activity that would threaten the transport of goods and services. 

Despite the grim price trend depicted in this sector chart, one industry group is attempting to overcome that slide by capitalizing on consumer activity.    

The U.S. Global Jets ETF (JETS) is the only ETF dedicated to an index of airline operators and manufacturers.  This fund debuted in April of this year and has already accumulated over $47 million in total assets. 

Top holdings in JETS include: Delta Airlines (DAL), United Contl Holdings (UAL), and Southwest Airlines (LUV).  In addition, this ETF sports an expense ratio of 0.60 percent.

Despite a difficult start to the summer that saw a drop from high to low of over 10 percent, JETS has rebounded significantly in July. 

One reason for the recent strength is the solid quarterly results reported by Southwest Airlines.  The domestic carrier reported a record profit amid cheaper fuel costs and solid demand.  Energy prices in particular are a big driver for airline profits, as this commodity represents a large portion of their fixed costs.

On Thursday, the United States Oil Fund (USO) dropped to its lowest level since March and is threatening to break below its 2015 floor.  A continued downtrend in oil prices alongside solid consumer activity would likely act as a tailwind for publicly traded airline companies.

Despite the concentrated nature of the JETS index, its stand-alone advantage in a popular area of the transportation industry makes it a niche ETF worthy of your attention.